Back to GetFilings.com
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 3, 2000
Commission File Number 1-10226
THE ROWE COMPANIES
(Exact name of registrant as specified in its charter)
Nevada 54-0458563
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1650 Tysons Boulevard, Suite
710, McLean, Virginia 22102
(Address of principal executive
offices) (Zip Code)
Registrant's telephone number, including area code: (703) 847-8670
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
------------------- -----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_] .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 9, 2001 (the exclusion from such amount of the market
value of the shares owned by any person shall not be deemed to be an admission
by the registrant that such person is an affiliate of the registrant) was
$30,286,245.
As of February 9, 2001, there were issued and outstanding 13,135,126 shares
of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated
-------- ------------------
Portions of the Annual Report for the year ended
December 3, 2000 Parts I, II and IV
Portions of the Annual Proxy Statement for the year
ended December 3, 2000 Part III
================================================================================
PART I
Item 1. Business.
General
The Rowe Companies (the "Company") is a synergistic collection of
manufacturers and retailers in the home furnishings industry. Originally
founded in 1946 as Rowe Furniture Corporation, we changed our name in March
1999 to more appropriately reflect the expanded scope of the Company's
operations.
In January 1998, the Company created a new subsidiary, The Wexford
Collection, Inc., ("Wexford"), to acquire the assets and liabilities of J&M
Designs, Ltd. In October 1998, the Company acquired The Mitchell Gold Company,
("Mitchell Gold"). In August 1999, the Company acquired Storehouse, Inc.,
("Storehouse"). These companies joined Rowe Furniture, Inc., ("Rowe"), our core
upholstered furniture subsidiary, and Home Elements, Inc., ("Home Elements"),
the Company's internally grown retail furniture chain. Home Elements previously
operated under the name The Rowe Showplace. In November 2000, the Company
announced its intention to discontinue operations at Wexford and dispose of the
assets.
The Company operates in two segments of the home furnishings industry, the
wholesale (manufacturing) home furnishings segment and the retail home
furnishings segment. The wholesale home furnishings segment includes the design
and manufacture of upholstered and leather furniture. Upholstered and leather
furniture includes sofas, loveseats and chairs, covered in fabric or leather.
The retail home furnishings segment sells upholstered and leather furniture
(primarily obtained from the wholesale segment), casegoods, dining sets, rugs
and other home furnishing accessories through Company-owned stores located
primarily throughout the mid-Atlantic, southeastern, and southwestern United
States. The information on pages 28 to 29 in the Annual Report to Stockholders
for the fiscal year ended December 3, 2000, is included in Exhibit 13 hereto
and incorporated herein by reference.
The Company is incorporated under the laws of Nevada. Its principal
executive offices are located at 1650 Tysons Boulevard, McLean, Virginia 22102,
and its telephone number is (703) 847-8670. Unless the context indicates
otherwise, references herein to the "Company" include The Rowe Companies, its
predecessors, and its subsidiaries.
Executive Officers Who Are Not Directors
Barry A. Birnbach has been in the service of the Company since 1968. He has
served as the Company's Vice President of Corporate Development since March
1999. Prior to becoming Vice President of Corporate Development, he was Vice
President--Special Account Sales at Rowe. He is the brother of Gerald M.
Birnbach, the Company's President and Chairman of the Board.
Timothy J. Fortune has been in the service of the Company since 1997. He has
served as the Company's Vice President of Human Resources & Strategy since
March 1999. Prior to joining the Company, Mr. Fortune was Human Resources
Administrator of the Virginia Department of Transportation from 1993 until
August 1997.
Michael M. Thurmond has been in the service of the Company since January 22,
2001. He has served as the Company's Secretary/Treasurer, CFO since joining the
Company. Prior to joining the Company, Mr. Thurmond was the Managing Director
of Capital Hotel Partners, LLC from 1998 to January of 2001 and the Managing
Director and Chief Financial Officer of The Appian Group from 1996 to 1998.
2
The Industry
As reported by the American Furniture Manufacturers Association in December
2000, the following table sets forth estimated factory shipments for the
domestic furniture industry in general, and the upholstered furniture segment
in particular, during each of the four years ended December 31, 2000.
1997 1998 1999 2000*
----- ----- ----- -----
(in billions)
Industry shipments................................... $21.2 $23.0 $25.0 $25.7
Upholstered furniture shipments...................... 8.5 9.5 10.6 10.9
- --------
* Estimated
The principal categories of furniture products include wood, upholstered and
metal furniture products. Of these categories, wood is the largest,
representing approximately half of total industry sales, while upholstered
furniture represents approximately 40% and metal and other products account for
the balance. Within each category, furniture manufacturers generally focus on
particular price ranges and styles.
The furniture industry historically has been cyclical, fluctuating with the
general economy. Management believes that the industry is significantly
influenced by consumer behavior and confidence, personal disposable income,
demographics, housing activity, interest rates, and credit availability. The
upholstered segment of the furniture industry generally has followed the same
trends as the rest of the furniture industry. There can be no assurance that an
economic downturn would not have a material adverse effect on the Company.
During 2000, a number of events transpired that make it likely that a
significant economic downturn will be encountered in 2001. Early in the year,
the prices of Internet and technology start-up firm stocks dropped sharply, and
continued to drop over the remainder of the year. Seeing signs of an overheated
economy and fears of inflation, the Federal Reserve began raising interest
rates. Energy costs increased, consumer debt levels began rising dramatically,
and falling stock prices spread to most sectors of the stock market.
The Company began to see the effects of all of the negative signs during the
fourth quarter, as incoming orders began to drop substantially compared to
historical levels, particularly at Rowe Furniture. The decline accelerated in
December, and in early January, approximately 130 employees were let go and
several production lines were shut down to better balance incoming orders and
production capacity. Numerous other manufacturing companies have reported
similar events, and the industry numbers shown above clearly show the slowing
rate of growth.
At the same time, the Federal Reserve, fearing that they may have over shot
the target for a soft landing, began lowering interest rates to stimulate the
economy. While this should eventually lead to improved business conditions,
there can be no assurance as to the time frame in which this will occur. The
Company continues to monitor incoming order levels as well as sales at our
retail units and dealers, and will take steps as conditions require.
Wholesale Home Furnishings Segment
Product Lines
The wholesale home furnishings segment's products encompass a full line of
upholstered furniture including sofas, loveseats, occasional chairs and sleep
sofas, covered in fabric or leather. The wholesale segment's products are
available in over 1,000 different fabrics. Styles offered include traditional,
contemporary and country.
The wholesale segment's product strategy is to provide a wide choice of
furniture styles, fabrics and leathers while providing high quality at
competitive prices. The wholesale segment continually reviews and evaluates its
designs, and primarily on a semi-annual basis adds and discontinues designs, as
it deems
3
appropriate. The wholesale segment identifies trends in styles, colors and
patterns through independent research, contacts with the wholesale segment's
customers and the occasional use of independent designers. Management also
solicits opinions from its customers and manufacturing and marketing employees
prior to final design selection.
Marketing and Sales
The wholesale segment has developed a broad and diverse national customer
base. The wholesale segment sells its manufactured products primarily through
commissioned sales personnel who are employees of the wholesale segment,
dedicated to marketing the wholesale segment's products exclusively. Management
believes that this arrangement gives the wholesale segment a competitive
advantage over many of its competitors, which sell their products through
independent sales representatives who represent more than one manufacturer. The
wholesale segment's products are sold to over 1,100 national, regional and
local furniture retailers, including Jordan's Furniture, Homelife, Crate &
Barrel, Pottery Barn, Restoration Hardware and the Company's wholly-owned
subsidiaries, Home Elements and Storehouse.
While the wholesale segment sells its products throughout the United States,
management believes that there are opportunities for greater penetration in the
regions where the wholesale segment's products are not widely distributed. The
wholesale segment has targeted key retailers in these markets as opportunities
for further growth.
The general marketing practice in the furniture industry is to exhibit
products at international and regional furniture markets. The wholesale segment
displays its product lines and introduces new products in April and October of
each year at an eight-day furniture market held in High Point, North Carolina.
The wholesale segment maintains two showrooms totaling 67,400 square feet at
the High Point market. In addition, the wholesale segment has developed plans
to increase sales in foreign markets, primarily in North America and Europe.
Approximately 3% of 2000 segment sales were to customers located outside of the
United States.
Retail Distribution
Despite the recent consolidation in the retail furniture industry,
management believes there are ample opportunities to expand the wholesale
segment's retail distribution network. The wholesale segment strives to
maintain strong relationships with, and increase sales to its existing
retailers. It also attempts to increase sales by adding new retailers,
particularly in geographic regions where its products are not widely
distributed, such as the Southwest and the West. When adding retailers, the
wholesale segment targets what it believes to be financially sound retailers
committed to progressive marketing approaches and the desire to carry a broad
selection within the wholesale segment's product line.
Key Customers. The wholesale segment sells its products to over 1,000
accounts with normal credit terms being net 30 days. Shipments to the wholesale
segment's top three customers as a percentage of net shipments were 15% in
2000, 17% in 1999 and 19% in 1998. Shipments to the wholesale segment's top ten
customers as a percent of net shipments amounted to 28% in 2000, 31% in 1999
and 30% in 1998. Combined shipments to the Company's retail segment were
$26,731,000 in 2000 and $21,158,000 in 1999, including shipments to Storehouse
prior to its acquisition by the Company.
Manufacturing and Distribution
The wholesale segment manufactures its products in six production
facilities, of which five are owned and one is leased. Two facilities
manufacture upholstered furniture; one facility manufactures upholstered and
leather furniture and one facility is used for frame storage and assembly. The
remaining two facilities manufacture upholstered frames and wood components in
addition to kiln-drying lumber for outside customers. Total manufacturing space
is approximately 1.4 million square feet.
Manufacturing Process. The wholesale segment primarily utilizes a vertically
integrated manufacturing process which includes kiln-drying of hardwood, wood
milling, frame construction, fabric and leather cutting,
4
sewing, foam cutting and filling, upholstery and final assembly of the
upholstered product. Rowe utilizes computer-aided design patterns and CNC
Routers to manufacture frames for upholstered furniture and both Rowe and
Mitchell Gold utilize specialized machines in the fabric cutting process which
facilitate design work, help maximize fabric yield, and increase the efficiency
of the assembly process. The completed pieces of upholstered furniture are then
cleaned, inspected and packed for shipping.
Manufacturing Efficiencies. Management has taken a number of steps to
improve manufacturing efficiencies, including implementation of computerized
systems in its manufacturing facilities to more effectively manage its
inventories, purchasing, labor and manufacturing processes; changes in its
employee compensation program; and the establishment of new internal systems to
control overhead and material usage. Management believes through a combination
of increased efficiencies, improved product quality, accelerated deliveries and
stable pricing, the wholesale segment will maintain a competitive advantage in
marketing its products.
Product Quality and Value. The wholesale segment is committed to providing
high quality, value oriented furniture at competitive prices. Management
believes the wholesale segment adheres to strict quality standards in all
aspects of design and production, including material selection, frame design
and construction, workmanship, and appearance. Product quality improvements in
recent years include better undercarriage construction, the use of higher
quality cushioning materials and improved fabric matching. A lifetime, limited
warranty applicable to most of the wholesale segment's products covering the
frames, springs, mechanisms and selected cushions reflects the wholesale
segment's commitment to high quality. The wholesale segment has been successful
in providing this quality while generally holding prices constant in recent
years.
Dedication to Customer Service. The wholesale segment is dedicated to
providing a high level of service to all its customers. The wholesale segment
maintains close contact and communicates frequently with its customers in order
to better identify, understand and meet their needs. Management believes the
utilization of wholesale segment-employed sales persons enables it to better
communicate with its customers.
Important aspects of the wholesale segment's service to certain customers
include its automated order entry, bar coding and electronic data interchange
systems. These systems give customers the ability to place orders directly, and
allows the wholesale segment to monitor the status of orders and track
inventory and sales activity. The wholesale segment is in the process of
enhancing the capabilities of these systems and increasing the number of
customers who utilize them. In addition, the wholesale segment has introduced
point-of-sale computer systems into Home Elements stores and other dealer
locations that allow retailers to display for consumers full-color pictures of
various combinations of furniture styles and fabric patterns. The wholesale
segment has established regional repair service centers so that it can respond
quickly to consumers' needs.
Another special emphasis of the wholesale segment's customer service is the
prompt delivery of its products, a significant portion of which are
manufactured and shipped generally within 30 days of receipt of an order. The
wholesale segment's order entry, credit approval, manufacturing and shipping
systems are all designed to provide prompt delivery to its customers.
Employee Compensation. At Rowe, employees are compensated primarily on
hourly rates plus bonuses for productivity improvements and cost reductions on
a facility-wide basis. Management believes that this program provides incentive
for employees to contribute to facility-wide efficiency, quality improvements
and cost reductions. On a facility-wide basis, 2000 monthly incentive bonuses
ranged from 0% to approximately 10% of hourly compensation. Salaried employees
also participate in this program; however, their bonuses cannot exceed the
highest amount paid to an hourly employee. At Mitchell Gold, a piecework system
is the primary method of compensation for production employees.
Computer Systems. The wholesale segment makes extensive use of a
computerized management information system (MIS) in the manufacturing process.
The MIS, which includes software developed by Rowe, helps manage order entry,
purchasing, labor, inventories, receivables and product shipments.
5
Management believes that its MIS is advanced by furniture industry standards;
however, the wholesale segment intends to continue to upgrade the system by
developing and/or purchasing new software to handle new applications and
additional demands of anticipated future growth.
During 2000, Rowe has been implementing a new production planning and
scheduling system. The initial process, scheduled for completion during 2001,
will allow for more efficient scheduling and production by ensuring that key
resources are available when needed. Further processes will improve visibility
of orders through the production process, increasing the effectiveness of the
finished goods warehousing and truck loading operations. This should result in
reduced lead times from order receipt to product shipment, as well as reducing
levels of inventory on hand.
Manufacturing Capacity. The wholesale segment primarily operates its
manufacturing facilities on a one-shift, five-or-six-day per week basis,
although partial second shifts are used in some facilities. Management believes
that the wholesale segment could expand production within existing facilities
without substantial capital expenditures by increasing personnel on first and
second shifts. At this time, the Company has no plans to construct additional
manufacturing facilities.
Backlog. The wholesale segment generally manufactures its products in
response to actual customer orders and typically ships the finished product
within 30 days following receipt of the related order, depending upon fabric
availability. Accordingly, the level of backlog at any particular time is
limited, and is not necessarily indicative of the level of future shipments.
The wholesale segment's backlog of unshipped orders was approximately $20
million as of December 3, 2000, compared to $23 million as of November 28,
1999. The wholesale segment anticipates that 100% of the backlog as of December
3, 2000 will be shipped in 2001.
Distribution. Rowe's products are primarily shipped to its customers through
a dedicated carriage service with a nationally recognized truck leasing
company. Under this agreement, Rowe's products are delivered in accordance with
Rowe's specifications on a modern fleet of over-the-road tractors and trailers
that prominently display the Rowe Furniture name. Management believes that this
agreement offers favorable terms, allows it to meet its delivery deadlines and
improves Rowe's name recognition. This agreement was renewed in 1999 for an
additional six years. West Coast shipments are provided by what management
believes to be a favorable arrangement for carriage of Rowe's products with a
third party motor carrier. International shipments of upholstered furniture are
primarily shipped in full containers utilizing third-party freight forwarders.
Approximately 80% of Rowe's fiscal year 2000 shipments were delivered under
these arrangements. Mitchell Gold primarily ships product via common carriers
utilizing either full or partial loads.
Raw Materials
The raw materials used by the wholesale segment include fabrics, leather,
lumber, plywood, assembled frames, polyurethane foam, metal components,
mattresses and finishing materials. Other than lumber, fabric and leather, all
raw materials used by the wholesale segment are generally available on an "as
needed" basis. The wholesale segment maintains what it believes to be an
adequate supply of raw materials in inventory.
The wholesale segment currently obtains its raw materials from a limited
number of suppliers, and in the case of hardwood plywood, primarily from a
single supplier. However, management does not believe the wholesale segment is
dependent upon a single supplier for any of its materials, as substitute
suppliers are available. Management believes that its sources of raw materials
are adequate. Management forms strong relationships with its suppliers and
negotiates favorable prices for its raw materials.
To improve quality, maximize the opportunities to implement labor saving
technology, hedge against the potential of rising wood costs and free up kiln
capacity, Rowe has increased the substitution of hardwood plywood for hardwood
in certain aspects of the construction of its furniture frames. Because plywood
construction is less labor-intensive, and in many respects more structurally
sound than hardwood construction, this method has improved product quality
while helping to reduce overall cost.
6
Retail Operations
Retail Home Furnishings Segment
The retail home furnishings segment includes the Home Elements and
Storehouse retail furniture chains. The retail segment is the largest customer
of the wholesale segment, and would be included in the top ten customer list if
the retail segment was an unaffiliated customer.
The retail segment operates 61 retail stores ranging in size from 4,000 to
18,000 square feet and three distribution centers averaging approximately
75,000 square feet each. All retail store locations and distribution centers
are leased. The stores are located throughout the mid-Atlantic, southeastern,
and southwestern United States, particularly in Atlanta, Georgia, Florida,
Texas and the Washington, DC/Baltimore metropolitan area. These stores sell
upholstered and leather furniture, virtually all of which is provided by the
wholesale segment; casegoods, such as tables, bedrooms, chairs and
entertainment centers; and lamps, rugs and other accessories.
The retail segment generally targets a well-educated, middle to upper income
customer. While in the past, advertising efforts have been primarily print-
based ads in newspapers and inserts, the segment began utilizing television ads
during 1999. The use of television advertising expanded during 2000 and is
expected to expand further in 2001. This will continue to result in increased
advertising costs in 2001.
The retail segment added seven new stores in fiscal year 2000. The segment
also relocated several stores to larger and more favorable locations during the
year, while closing five smaller, unprofitable stores. The retail segment has
expanded its administrative staff and improved its systems capabilities in
support and anticipation of current and planned growth.
The segment expects to open five new stores and close one store during 2001.
Renovations are planned for several other stores and plans are being made for
additional expansion in 2002 and beyond.
Governmental Regulations and Environmental Considerations
The Company's operations are required to meet federal, state and local
regulatory standards in the areas of safety, health and environmental pollution
controls. Historically, compliance with these standards has not had a material
adverse effect on the Company's operations. Management believes that the
wholesale segment's plants are in compliance, in all material respects, with
applicable federal, state and local laws and regulations concerned with safety,
health and environmental protection.
The Company currently anticipates increased federal and state environmental
and health and safety regulations affecting the furniture industry,
particularly regarding flammability standards, emissions from paint and
finishing operations and wood dust levels in the manufacturing process. Any
such additional regulations could affect the wholesale segment's upholstery,
wood milling and finishing operations. The industry and its suppliers are
attempting to develop water-based finishing materials to replace commonly used
organic-based finishes, which are a major source of regulated emissions. The
Company cannot at this time estimate the impact of any new regulations on the
Company's operations or the costs of compliance.
Competition
The furniture industry is highly competitive and includes a large number of
manufacturers and retailers. The market in which the Company competes includes
a large number of manufacturers of upholstered and wood furniture as well as a
growing base of specialty furniture retailers. Certain of the Company's
competitors have greater financial resources than the Company. Management
believes that the high quality, design and competitive pricing of the Company's
products, the Company's unique retail format, the Company's reputation among
retailers and customers and the Company's commitment to customer service have
enabled the Company to compete successfully in this market.
7
Employees
As of December 3, 2000, the Company employed approximately 3,300 full-time
employees, of whom approximately 600 are in management, supervisory and sales
positions. None of the Company's employees are covered under a collective
bargaining agreement. The Company considers its employee relations to be good.
Trademarks
The Company, through a wholly-owned intellectual property holding company,
has registered its "Rowe", "A Whole New Way to Buy Furniture", "The Rowe
ShowPlace", "The ShowPlace Coordinated Home Furnishings by Rowe", "Rowe First
in Fashion", "Regency Manor", "The Rowe ShowMe Machine", "Limited Editions",
"The ShowPlace", "Cover Ups", "Comfortable Stuff", "Comfortable Stuff by Rowe",
"Robin Bruce", "MG" and "Mitchell Gold" trademarks with the United States
Patent and Trademark Office. The Company, through a wholly-owned operating
subsidiary, has also registered with the United States Patent and Trademark
Office the "Storehouse" trademark. Applications for registration of the
Company's "Home Elements", "Home Wear", "Room Sense", "Room Scenes" and "Rowe
Furniture Rowe" trademarks are pending before the United States Patent and
Trademark Office. In addition, the Company has certain of its trademarks
registered in Australia, Canada, Chile, the European Community, Germany and
Mexico, and applications for registration of certain of the Company's
trademarks are pending in Australia, Brazil, Canada, the European Community and
Mexico. The Company is in the process of applying for registration of certain
of its marks in Argentina, Chile, the Dominican Republic, Egypt, Japan, Kuwait,
Saudi Arabia, Singapore, South Korea, Thailand and Turkey. Management believes
that its trademark position is adequately protected in all markets in which the
Company does business. Management also believes that the Company's trade names
are recognized by dealers and distributors and are associated with a high level
of quality and value.
Insurance
The Company maintains what management believes is a complete liability and
property insurance program. Additionally, the Company maintains self-insurance
programs for that portion of health care costs not covered by insurance.
Financing
The Company utilizes bank financing to partially fund working capital
requirements, capital expenditures, stock repurchases and funding of
acquisitions. In 1998 and 1999, overall funding requirements increased and the
Company entered into two borrowing arrangements in November 1998 and July 1999
in the form of two $25 million revolver loans. Beyond this financing, the
Company maintains committed credit lines in the amount of $18 million through
two banking institutions. At December 3, 2000, $48 million of the $50 million
of revolver loans were outstanding. In addition, $4.0 million of short-term
borrowings were outstanding under the Company's short-term credit facilities.
As a result of greater spread to LIBOR based upon the Company's financial
performance (offset in part by anticipated declines in LIBOR), interest expense
is likely to increase in fiscal 2001.
In conjunction with the purchase of Mitchell Gold, the Company guaranteed
and assumed responsibility for the $6.0 million Industrial Revenue Bond used to
finance the construction of a new production facility. The Company also issued
$3 million of convertible debentures as part of the initial purchase price of
Mitchell Gold. The debentures mature on October 31, 2001. Based upon the
conversion price of the debentures substantially exceeding the current market
price of the Company's common stock, the Company anticipates making a cash
payment on the debentures at maturity.
In August 1999, as amended in October 2000, the Company executed an
agreement to enter into a five-year lease for its new upholstery manufacturing
facility located in Elliston, Virginia. In addition, the Company entered into
operating leases of approximately $1.6 million for office equipment and rolling
stock at this location. As a result of these financing transactions, additional
overhead expense in the form of rent and equipment lease charges will be
incurred in 2001 and beyond.
8
The Company's bank financing agreements contain financial covenants. In
anticipation of being out of compliance with these covenants, the Company
requested and received waivers from the lending institutions for the third
quarter of 2000. With the decision to discontinue operations at Wexford, the
Company incurred a significant loss on the disposal that was recorded in the
fourth quarter, causing the Company to be out of compliance. Subject to the
execution of final documents, the Company received waivers from the lending
institutions for the fourth quarter ending December 3, 2000, and modified the
agreements going forward to exclude losses related to the disposal of Wexford.
In conjunction with these discussions, in February 2001, the Company agreed to
add additional ranges to the borrowing agreements whereby higher interest rates
would be applicable should financial performance, as measured by funded debt to
EBITDA, exceeds 2.75x. The Company granted the lending institutions a security
interest in certain non-real estate assets of the Company. The Company also
extended the term of the revolving loan issued in November 1998 by one year to
March 31, 2003 and converted $8 million of its available short-term lines of
credit to revolving bank debt maturing in March 2002.
During the fourth quarter of fiscal 2000, the Company entered into two
interest rate derivative contracts for the purpose of hedging the Company's
exposure to rising interest rates under the lease for the Elliston facility.
The Company executed a contract to swap variable rates (based on 30 day LIBOR)
for fixed rates on $20 million notional principal through August 2004. The
contract locked in a fixed rate of 6.805% (plus a spread based upon financial
performance of the Company). The Company also executed an interest rate collar
contract on $5 million notional principal with a floor of 5.75% and a cap of
8.25% (both plus a spread based upon financial performance). As of December 3,
2000, 30 day LIBOR was 6.73%. The Company has recorded a liability for the
present value of the excess of payments under the swap contract. The fair value
of the swap is reflected in other comprehensive income, net of taxes, as the
Company has designated this contract as a cash flow hedge.
Goodwill
The Company recorded approximately $15 million in goodwill from the
acquisition of Mitchell Gold, including $5 million paid during fiscal year 2000
under the interim earn-out provisions of the purchase agreement. The Company
recognized approximately $16 million in goodwill from the acquisition of
Storehouse. In conjunction with the disposal of Wexford, the Company recognized
an impairment loss of $2.3 million during the fourth quarter for the remaining
goodwill from the acquisition of Wexford. Due to the timing of the additional
goodwill recognized on the Mitchell Gold interim earn-out payment, the charge
to the Company in 2001 for goodwill amortization will increase slightly.
Item 2. Properties.
The following table sets forth certain information concerning the wholesale
segment's manufacturing facilities:
Approximate
Size in Owned or
Location Description Square Feet Leased
-------- --------------------- ----------- --------
Salem, Virginia................... Manufacturing 241,000 Owned
Administrative Office
Elliston, Virginia................ and Manufacturing 435,000 Leased
Poplar Bluff, Missouri............ Manufacturing 300,000 Owned
Morehouse, Missouri............... Manufacturing 136,000 Owned
Administrative Office
Taylorsville, N. Carolina......... and Manufacturing 265,000 Owned
Taylorsville, N. Carolina......... Manufacturing 50,000 Owned
9
In addition, the Company leases executive and administrative offices in
McLean, Virginia, administrative offices in Atlanta, Georgia, 60 retail store
locations, 3 retail distribution centers and 2 showrooms. The Company considers
these facilities to be adequate and well maintained.
In addition, the Company owns the following properties that are held for
investment and are leased on a net basis:
Approximate
Lease Size in
Location Expires Description Square Feet
-------- ------------ ----------------- -----------
Christiansburg, Virginia..... Various thru Industrial 79,000*
07-31-02
Salem, Virginia.............. Various thru Industrial 335,000*
09-30-02
Jessup, Maryland............. Various thru Office/Industrial 180,000
06-03-05
Sylmar, California........... 03-31-04 Industrial 115,000
- --------
* 25% of these properties are currently leased
Investment properties located in Christiansburg, Virginia and Sylmar,
California were originally acquired by the Company between 1972 and 1985 for
utilization as manufacturing facilities. The Salem, Virginia property was Rowe
Furniture's main administrative offices and manufacturing facility for many
years. In past years (fiscal 2000 for the Salem, Virginia property), the
Company ceased utilizing these facilities for its own operations and determined
that the best return on these properties could be realized by leasing them to
third parties. In February 1995, the Company completed the sale of a 175,000
square foot warehouse in Sylmar, California. The warehouse had been held by the
Company as investment property. The after-tax gain was approximately $3.0
million, net of lost rents during the disposition period. In June of 1995, the
Company purchased other rental income-producing property in Jessup, Maryland to
permit a "tax-deferred" exchange with the proceeds realized from this
transaction. A retail property located in Leesburg, Florida, which was acquired
in 1984, was sold during fiscal year 1997. In 1998, the value of the investment
property in Christiansburg, Virginia was written down by $288,000 to more
appropriately reflect current value, as new tenants had not been secured to
occupy leasable space. Aggregate rental income from investment properties, net
of commissions, was $1,412,000, $1,437,000 and $1,570,000 in 1998, 1999 and
2000, respectively.
The Company also holds leasehold interests in two other properties (in
Carson and Pasadena, California) through its discontinued Wexford subsidiary.
The Company plans to sublease these properties on a pass through basis.
Item 3. Legal Proceedings.
There are no pending legal proceedings, other than routine litigation
incidental to the business of the Company. While the outcome of these routine
legal proceedings cannot be predicted with certainty, it is the opinion of
management that the resolution of these legal proceedings should not have a
material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies, or otherwise, during the quarter ended December 3,
2000.
10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) The information contained under the caption "Stock Price and Dividend
Data" on page 32 in the Annual Report to Stockholders for the fiscal year ended
December 3, 2000 is included in Exhibit 13 hereto and incorporated herein by
reference.
(b) Approximate Number of Equity Security Holders.
Approximate Number of Record
Title of Class Holders as of December 3, 2000
-------------- ------------------------------
Common Stock, par value $1.00 per share...... 1,000
Item 6. Selected Financial Data.
The information contained under the caption "Five-year Summary" on page 13
in the Annual Report to Stockholders for the fiscal year ended December 3, 2000
is included in Exhibit 13 hereto and incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The management's discussion and analysis of financial condition and results
of operations section on pages 14 to 16 of the Annual Report to Stockholders
for the fiscal year ended December 3, 2000 is included in Exhibit 13 hereto and
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Risk Disclosures
Because the Company's obligations under its term loans, revolving loans,
lines of credit and industrial revenue bonds bear interest at variable rates,
the Company is sensitive to changes in prevailing interest rates. A 10%
fluctuation in market interest rates would result in a change of approximately
$420,000 in interest expense during the 2001 fiscal year.
Forward Looking Information
Certain portions of this report contain forward looking statements. These
statements can be identified by the use of future tense or dates or terms such
as "believe," "expect," "anticipate" or "plan." Important factors could cause
actual results to differ materially from those anticipated by some of the
statements made in this report. Some of the factors include, among other
things, changes from anticipated levels of sales, whether due to future
national or regional economic and competitive conditions, customer acceptance
of existing and new products, or otherwise; pending or future litigation;
pricing pressures due to excess capacity; raw material cost increases;
transportation cost increases; the inability of a major customer to meet its
obligations; loss of significant customers in connection with a merger or
acquisition, bankruptcy or otherwise; actions of current or new competitors;
increased advertising costs associated with promotional efforts; change of tax
rates; change of interest rates; future business decisions and other
uncertainties, all of which are difficult to predict and many of which are
beyond the control of the Company.
11
Item 8. Financial Statements and Supplementary Data.
The following information on pages 17 to 31 in the Annual Report to
Stockholders of the fiscal year ended December 3, 2000 is included in Exhibit
13 hereto and incorporated herein by reference:
Consolidated Balance Sheets--- December 3, 2000 and November 28, 1999
Consolidated Statements of Income and Comprehensive Income--- Years
Ended December 3, 2000, November 28, 1999 and November 29, 1998
Consolidated Statements of Stockholders' Equity--- Years Ended December
3, 2000, November 28, 1999 and November 29, 1998
Consolidated Statements of Cash Flows--- Years Ended December 3, 2000,
November 28, 1999 and November 29, 1998
Notes to Consolidated Financial Statements (includes selected quarterly
financial data)
Report of Independent Certified Public Accountants
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
12
PART III
Notwithstanding anything below to the contrary, the Report of the
Compensation and Stock Option Committees and the Performance Graph contained on
pages 12 through 14 of the Company's 2001 Annual Meeting Proxy Statement are
not incorporated by reference in this Form 10-K.
Item 10. Directors and Executive Officers.
The information required by Item 10 is contained in the Company's 2001
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 11. Executive Compensation.
The information required by Item 11 is contained in the Company's 2001
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is contained in the Company's 2001
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is contained in the Company's 2001
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The consolidated balance sheets as of December 3, 2000 and November 28, 1999
and the related consolidated statements of income and comprehensive income,
stockholders' equity, cash flows and notes to consolidated financial statements
for each of the three years in the period ended December 3, 2000, together with
the report of BDO Seidman, LLP dated February 12, 2001, appearing in the 2000
Annual Report to Stockholders are incorporated herein by reference. The
following additional financial data should be read in conjunction with the
consolidated financial statements in such 2000 Annual Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Certified Public Accountants on Financial
Statement Schedule.
Schedule II--Valuation and Qualifying Accounts.
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the consolidated financial statements and notes thereto.
3. Exhibits:
Exhibit
Number Exhibit
------- -------
3.1 Articles of Incorporation of the Company (incorporated by reference to
the Company's Registration Statement on Form S-1 No. 33-74504 filed
with the Securities and Exchange Commission on January 27, 1994)
3.2 Certificate of Amendment dated March 30, 1999, of Articles of
Incorporation of The Rowe Companies (incorporated by reference to the
Company's Registration Statement on Form S-8 No. 333-82571 filed with
the Securities and Exchange Commission on July 9, 1999)
3.3 By-laws of the Company
4 Specimen Stock Certificate (incorporated by reference to the Company's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on January 5, 1994)
10.1 Rowe Furniture Corporation 1983 Stock Option and Incentive Plan
(incorporated by reference to the Company's Registration Statement on
Form S-1 No. 33-74504 filed with the Securities and Exchange
Commission on January 27, 1994)
10.2 The Rowe Companies Amended and Restated 1993 Stock Option and
Incentive Plan (incorporated by reference to the Company's
Registration Statement on Form S-8 No. 333-82571 filed with the
Securities and Exchange Commission on July 9, 1999)
10.3 Rowe Furniture Corporation Merged 401(k) and Employee Stock Ownership
Plan dated December 1, 1991 (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504 filed with
the Securities and Exchange Commission on January 27, 1994)
10.4 Rowe Furniture Corporation Amended and Restated Supplemental Executive
Retirement Plan II (incorporated by reference to the Company's
Registration Statement on Form S-1 No. 33-74504 filed with the
Securities and Exchange Commission on January 27, 1994)
10.5 Employment Agreement dated December 6, 1984 between the Company and
Mr. Barry A. Birnbach (incorporated by reference to the Company's Form
10-K filed with the Securities and Exchange Commission on February 25,
2000)
10.6 First Amendment to the Salary Continuation Agreement By and Between
Rowe Furniture Corporation and Barry A. Birnbach dated August 28, 1995
(incorporated by reference to the Company's Form 10-K filed with the
Securities and Exchange Commission on February 25, 2000)
14
Exhibit
Number Exhibit
------- -------
10.7 Amended and Restated The Rowe Companies Cash-or-Deferred Non-Qualified
Executive Retirement Plan effective March 28, 2000
10.10 Employment Agreement dated February 2, 1998 between the Company and
Mr. Gerald M. Birnbach (incorporated by reference to the Company's
Form 10-K filed with the Securities and Exchange Commission on
February 12, 1998)
10.11 Master Agreement dated August 27, 1999 among Rowe Furniture, Inc., and
certain other Subsidiaries of The Rowe Companies that may hereafter
become party hereto, as Lessees, The Rowe Companies, The Mitchell Gold
Company, Rowe Properties, Inc., Storehouse, Inc., Home Elements, Inc.,
Rowe Diversified, Inc. and Wexford Collection, Inc. and certain other
subsidiaries of The Rowe Companies that may hereafter become party
hereto, as Guarantors, Atlantic Financial Group, LTD, as Lessor,
Crestar Bank and certain Financial Institutions parties hereto, as
Lenders and Crestar Bank, as Agent (incorporated by reference to the
Company's Form 10-K filed with the Securities and Exchange Commission
on February 25, 2000)
10.12 Master Lease Agreement dated as of August 27, 1999 between Atlantic
Financial Group, LTD, as Lessor, and Rowe Furniture, Inc. and certain
other Subsidiaries of The Rowe Companies that may hereafter become
party hereto, as Lessees (incorporated by reference to the Company's
Form 10-K filed with the Securities and Exchange Commission on
February 25, 2000)
10.13 Construction Agency Agreement dated as of August 27, 1999 between
Atlantic Financial Group LTD and Rowe Furniture, Inc. as Construction
Agent (incorporated by reference to the Company's Form 10-K filed with
the Securities and Exchange Commission on February 25, 2000)
10.14 Guaranty Agreement from The Rowe Companies, The Mitchell Gold Company,
Inc., Rowe Properties, Inc., Storehouse, Inc., Home Elements, Inc.,
Rowe Diversified, Inc. and Wexford Collection, Inc. dated as of August
27, 1999 (incorporated by reference to the Company's Form 10-K filed
with the Securities and Exchange Commission on February 25, 2000)
10.15 Appendix A to Master Agreement, Lease, Loan Agreement and Construction
Agency Agreement dated August 27, 1999 (incorporated by reference to
the Company's Form 10-K filed with the Securities and Exchange
Commission on February 25, 2000)
10.16 First Amendment to Revolving Credit Loan Agreement dated October 6,
2000 between The Rowe Companies, Rowe Furniture, Inc., The Mitchell
Gold Co., Rowe Diversified, Inc., Home Elements, Inc., Rowe
Properties, Inc., The Wexford Collection, Inc. and Bank of America,
N.A.
10.17 First Modification to Synthetic Lease Financing Operative Documents
dated October 11, 2000 between Rowe Furniture, Inc., The Rowe
Companies, The Mitchell Gold Co., Home Elements, Inc., Rowe
Properties, Inc., Storehouse, Inc., The Wexford Collection, Inc. and
Atlantic Financial Group, LTD and Suntrust Bank, N.A.
10.18 Second Modification to Revolving Credit Loan Agreement dated October
11, 2000 between The Rowe Companies, Rowe Furniture, Inc., The
Mitchell Gold Co., Rowe Diversified, Inc., Home Elements, Inc. Rowe
Properties, Inc., Storehouse, Inc., The Wexford Collection, Inc. and
Suntrust Bank, N.A.
13 Portions of the Annual Report for the year ended December 3, 2000
21 List of Subsidiaries
23 Consent of BDO Seidman, LLP
(b) Reports on Form 8-K.
On November 14, 2000, a Form 8-K was filed reporting that on November 10,
2000, The Rowe Companies announced that it would be discontinuing operations at
its wholly-owned subsidiary, The Wexford Collection, Inc. a specialty
manufacturer of high quality, solid wood furniture, by January 10, 2001.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The Rowe Companies
/s/ M. M. Thurmond
By: _________________________________
M. M. Thurmond, Chief Financial
Officer, Secretary-Treasurer
February 16, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ G. M. Birnbach Chairman of the Board February 16, 2001
______________________________________ President, Director
G. M. Birnbach (Principal Executive
Officer)
/s/ R. E. Cheney Director February 16, 2001
______________________________________
R. E. Cheney
/s/ M. S. GOLD Director February 16, 2001
______________________________________
M. S. Gold
/s/ H. I. Ptashek Director February 16, 2001
______________________________________
H. I. Ptashek
/s/ C. T. Rosen Director February 16, 2001
______________________________________
C. T. Rosen
/s/ K. J. Rowe Director February 16, 2001
______________________________________
K. J. Rowe
/s/ S. J. Silver Director February 16, 2001
______________________________________
S. J. Silver
/s/ Allan Tofias Director February 16, 2001
______________________________________
Allan Tofias
/s/ G. O. Woodlief Director February 16, 2001
______________________________________
G. O. Woodlief
16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Rowe Companies
McLean, Virginia
The audits referred to in our report dated February 12, 2001, relating to
the consolidated financial statements of The Rowe Companies, which is contained
in Item 8 of this Form 10-K (incorporated in Item 8 of the Form 10-K by
reference to the annual report of stockholders for the year ended December 3,
2000) included the audit of the financial statement schedule listed in the
accompanying index. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
_____________________________________
BDO Seidman, LLP
High Point, North Carolina
February 12, 2001
17
THE ROWE COMPANIES
AND WHOLLY-OWNED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 3, 2000, November 28, 1999 and November 29, 1998
(Thousands of Dollars)
COL. A COL. B COL. C COL. D COL. E
- ------------------------ ----------- --------------------- ------------ ----------
Additions
---------------------
(1) (2)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions - End of
Description of Period Expenses (Describe) (Describe) Period
- ----------- ----------- ---------- ---------- ------------ ----------
Allowance for doubtful
Accounts--2000......... $864 $ 1,884 $-- $ 892 (A) $1,856
Allowance for doubtful
Accounts--1999......... $875 $ 413 $-- $ 424 (B) $ 864
Allowance for doubtful
Accounts--1998......... $316 $(1,285) $-- $(1,844)(C) $ 875
- --------
(A) Accounts charged off less bad debt recoveries of $132,000
(B) Accounts charged off less bad debt recoveries of $5,000
(C) Accounts charged off less bad debt recoveries of $1,980,000
18